LINCOLN — Two state senators co-sponsoring Gov. Dave Heineman's bold plan to eliminate Nebraska income taxes laid out a strategy Friday to retreat and revamp the widely criticized idea.
The plan: create a “working group” of interested parties, including business and agriculture groups, to remake the proposals by April 1 into something that could be passed.
Sens. Brad Ashford and Beau McCoy, both of Omaha, noted that a working group was successful in reaching a compromise on another difficult issue — collective bargaining by public employee unions — and could work on taxes, too.
They said lawmakers, and not the governor — whose relations with the Legislature have taken some hits in recent years — should take the lead in crafting a workable tax proposal.
“The governor's role should be as a cheerleader,” Ashford said.
The comments came after two days of public hearings on Heineman's two tax reform bills. They were criticized by just about every major interest group in Nebraska — from business, banking and farm groups to those representing hospitals, churches and the poor — as job killers that would take the profit out of farming and force manufacturing out of state.
Instead of forging ahead with a tax debate this year, as favored by the governor and his co-sponsors, opponents asked for a swift death to the ideas to eliminate uncertainty in business and ag circles. Several spoke in favor of a competing proposal by Sen. Paul Schumacher of Columbus to study tax issues through December and debate the matter next year.
“Tax policy is extremely complicated,” said Renee Fry of the Lincoln-based OpenSky Policy Institute. “There are all sorts of unintended consequences. You need to meticulously go through all of these exemptions.”
A key player in the tax debate, Sen. Galen Hadley of Kearney, chairman of the powerful Revenue Committee, remained noncommittal Friday about whether a tax plan needs to be debated this year or can wait until 2014.
Hadley said his committee would take the weekend to let the dust settle, then begin to discuss what course to take.
But he said the barrage of criticism has convinced him that taxing “inputs” — the lumber used to produce a desk, or the seed and fertilizer used to grow crops — is not a good idea.
Ashford said he thinks any new tax plan should exempt taxes on manufacturing inputs. Companies testified that taxing them would add new expenses to Nebraska-made goods, rendering them uncompetitive with those produced in other states where inputs are not taxed.
Ashford, a candidate for mayor of Omaha, said he believes a new tax package should include an expansion of sales taxes to more services, such as haircuts and auto repair, and elimination of some sales tax exemptions. That would allow a cut in income taxes as well as more state aid to reduce property taxes.
Providing property tax relief in a tax swap bill is key to gaining the support of farm groups, Ashford said.
“What we don't want to do is set up an urban-rural fight over taxes,” he said.
Heineman also suggested forming a working group, but McCoy and Ashford went further by suggesting that it mirror the process used to reach a compromise on reforming collective bargaining.
During the 2011 legislative session, Sens. Mike Flood and Steve Lathrop led discussions that included representatives of the state's main labor and business groups. The group met outside the Legislature and crafted a compromise plan to reform the Commission of Industrial Relations. The goal was to rein in the escalating costs of public pensions.
Ashford said Heineman told him he would extend this year's 90-day session, if necessary, to get a tax bill passed.
That prospect brought a harsh response from one member of the Revenue Committee.
Sen. Burke Harr of Omaha said a big problem in the tax debate is that the governor worked out his plan “secretly,” and now the Legislature is left trying to figure out whether anything is possible. Harr said he would oppose any extension of the session.
“I have to go make a living,” he said.
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